Refinance demand persists, despite rate uncertainty: Transunion

Consumers who recently obtained a mortgage and are facing cash constraints want to refinance in the near future. However, recent fluctuations in mortgage rates have put into question when the best time to do so might be.

Four out of five recent home buyers say they would consider refinancing within the next year if interest rates decrease, according to a TransUnion survey. This indicates that mortgage lenders should continue to actively market to these potential refinance candidates, said Satyan Merchant, senior vice president of mortgage and auto at TransUnion.

Despite a decline in interest rates earlier this year, rates have risen to 7% as of Oct. 28. With the presidential election approaching, some economists suggest this increase may be linked to expectations of a Trump victory and potential economic turbulence.

TransUnion's report, based on responses from over 1,000 customers who obtained a mortgage in the past 24 months, found that 80% say their mortgage payment is straining their finances. The survey was conducted between Sept. 18 and Sept. 27.

"For many of these recent home buyers, their mortgage payment is their largest single payment each month," said Merchant in a press release. "The upside is that it is a payment that can be refinanced if the economic climate allows for it, and as interest rates begin to fall, this group of consumers should begin exploring this option."

Most borrowers surveyed (70%) said they would refinance for more favorable loan terms, while 67% cited better interest rates and 61% mentioned cash-out refinancing as motivating factors.

Nearly 90% of millennials indicated they would refinance in the next 12 months if rates decrease, with 77% of Gen Z respondents and 79% of Gen X expressing a similar interest in refinancing if the terms are favorable.

Mortgage application activity, specifically for refinances, has softened sizably. 

Refinance applications made up 43.1% of total applications for the week ending Oct. 25, according to the Mortgage Bankers Association, straying further from once accounting for the majority of activity.

The conditions could favor some mortgage industry players over others, a research note from  Keefe, Bruyette and Woods said."We continue to believe this backdrop is particularly negative for refi volume-sensitive names within our coverage (primarily Rocket)," wrote analysts, using the lender's stock symbol. "We prefer names which typically benefit more on a relative basis from higher purchase volumes."Pennymac Financial Services and United Wholesale Mortgage are listed as purchase market beneficiaries by the investment banking company.

Future outlook for refinance activity remains uncertain, though there are predictions that rates should fall below the 6% threshold sometime next year, which could amp up demand.

The MBA is forecasting an industry recovery that starts with $1.8 trillion in mortgage originations for 2024, up slightly from a recently revised $1.4 trillion in 2023. By 2025, projections put the annual number at $2.3 trillion and $2.5 trillion the following year.